Risks to banking sector remain elevated, gross NPAs likely to rise to 10.8% by March: RBI

The gross non-performing assets (GNPAs) in banking sector may rise from 10.2 percent of gross advances in September 2017 to 10.8 percent in March 2018, according to Reserve Bank of India.

"Stress test suggests that in the baseline scenario, GNPAs of the banking sector may rise from 10.2 percent of gross advances in September 2017 to 10.8 percent in March 2018 and further to 11.1 percent by September 2018, " RBI said in the financial stability report released late evening on Thursday.

The report highlighted that the overall risks to the banking sector "remained elevated due to asset quality concerns".

The report further said,"Credit growth of scheduled commercial banks (SCBs) showed an improvement between March and September 2017, while public sector banks (PSBs) continued to lag behind their private sector peers." India's financial system remains stable, it added.

It pointed out that the overall capital to risk-weighted assets ratio (CRAR) improved from 13.6 percent to 13.9 percent between March 2017 and September 2017. This showed the share of large borrowers both in total SCBs’ loans as well as GNPAs  declined between March and September 2017.

Credit growth of SCBs, on a YoY basis, increased from 4.4 percent to 6.2 percent between  March and September 2017.

The public sector banks’ (PSBs) credit growth increased from 0.7 percent to 2.2 percent during the same period reversing the declining trend observed during past two years.

GNPAs of the non-banking finance banks (NBFCs) sector as a percentage of total advances increased between March 2017 and September 2017.

However, scheduled commercial banks continued to dominate 47 percent of the bilateral exposure.

The overall investment climate remains challenging though the situation has shown improvement since 2017-18 Q1. It added that the decline in stalled projects, quality of government expenditure, Moody's India rating upgrade and bank recapitalisation are expected to provide a significant fillip to investment sentiments in the coming quarters.

On the economic front, in the emerging market context, exports are growing at their fastest clip in six years on the back of a pick-up in global growth. In terms of structural change, the information technology led growth is possibly making the world a lot more unequal.